City Council
Staff Report
From: City Manager
Report Type: INFORMATION REPORTS
Lead Department: Planning and Development Services
Meeting Date: December 15, 2025
Report #:2510-5386
TITLE
Feasibility of Marketing Different Housing Typologies without On-Site Parking (2023-2031 Housing Element Program 3.9(B)). CEQA Status: Exempt under CEQA Guidelines Section 15378.
RECOMMENDATION
This is an informational report, and no Council action is required.
EXECUTIVE SUMMARY
The City of Palo Alto’s 2023-2031 Housing Element (Housing Element) includes Program 3.9(B), requiring staff to conduct outreach concerning the “feasibility of marketing different housing typologies without on-site parking (paid through in-lieu fee) and implications to City parking resources,” and present findings to the City Council by December 31, 2025. This informational report summarizes the outreach and analysis for Program 3.9(B) (Attachment A). The program also requires that amendments to the Palo Alto Municipal Code (PAMC) directed as a result of this Program be adopted by December 31, 2026.
Because State law (including AB 2097) eliminates minimum parking requirements within ½ mile of major transit stations, the City cannot impose or rely on residential parking in-lieu fees in areas where Program 3.9(B) was intended to apply. As a result, staff do not recommend any amendments to the PAMC related to Program 3.9B.
This reports fulfills the City’s obligations under Program 3.9(B), and related, though separate, parking policy work is expected to continue as part of broader mobility and parking management efforts beginning in 2026.
BACKGROUND
The City’s Housing Element contains a number of programs intended to increase housing supply, including Programs 3.1 through 3.9, intended to remove existing potential constraints to residential development. Program 3.9 considers the constraints impacting the conversion of
commercial uses to mixed-use residential development. The program is based on the tenets that:
Mixed-use projects are a more efficient use of land and can make housing development more profitable and therefore more likely to be constructed and are appropriate in certain areas.
Mixed-use development downtown or near high quality transit and rail service can enhance the local economy and support small businesses. The City’s jobs/housing balance can be improved by encouraging mixed-used residential development over commercial development.
Palo Alto will implement development standards that incentivize greater housing production and temper the strong market demand for commercial development.
One component, Program 3.9(B), requires that the City:
1. Conduct outreach with home builders and other stakeholders regarding the feasibility of marketing different housing typologies without on-site parking (paid through in-lieu fee) and implications to City parking resources; and
2. Present findings to the City Council with options on how to proceed, including extension of the University Ave In-Lieu Parking program to residential projects and creation of an in-lieu parking program for the California Avenue area.
The City currently owns and operates 20 parking garages and parking lots in the Downtown area, with time-restricted visitor spaces and permit only spaces set aside for employees participating in a City program. The City also manages a Residential Preferential Parking Program for on-street spaces in neighborhoods surrounding the Downtown. While these programs balance business versus resident parking uses, recent and proposed policy changes by the Office of Transportation (OOT) will continue to consider utilizing pricing to encourage short- term parking on street, long-term parking in parking garages and the use of alternative modes of transportation in the Downtown.
In addition, Housing Element Program 3.9(A) examines ways to shift the economic benefit away from commercial development towards residential or mixed-use residential development, and will be brought forward to City Council as a separate item in 2026.
ANALYSIS
Staff conducted a review of applicable State law and conducted stakeholder outreach to understand what might be possible in terms of both off-site parking and the in-lieu fees that would be needed to fund such a program. Below are the key findings, further described in Attachment A:
State Law (namely Assembly Bill [AB] 2097 adopted in 2022) precludes the City from enforcing minimum parking requirements near the Downtown and California Avenue Caltrain stations for most uses, including residential development. Because in-lieu fees must be tied to a minimum parking requirement that is being waived, AB 2097 also eliminates the legal basis for imposing parking in-lieu fees in these transit-rich locations. If residential developers voluntarily elected to pay a fee to obtain off-site parking spaces or the City implemented a new parking impact fee, the existing commercial in-lieu fee of $130,823 per space for non-residential development would be cost-prohibitive and infeasible for residential projects.
On-site parking is still the norm for multi-family and mixed-use developments along the Peninsula. Generally, 1 to 1.2 spaces per unit is the minimum typically required by lenders, investors and developers. There is support among developers for eliminating or reducing parking requirements beyond what is prescribed in State law to allow the market to determine appropriate parking needs, however, because State law already eliminates most residential parking minimums near transit, any further reductions would apply only in areas where justifying such reductions is more challenging.
Furthermore, there are existing measures developers can take to request a site-by-site parking reduction if warranted (e.g., State Density Bonus Law concessions or objective parking reductions).
Some stakeholders believe that potential tenants will self-select, for example, residents who do not own cars will choose to live in units that do not have a parking space. Other stakeholders believe that, especially given high rents and amenities of units in Palo Alto, a parking space is required and expected as part of a unit. According to property managers, units that do not have any parking can be difficult to lease.
For these reasons, State law preempting local minimum parking requirements, the lack of a legal nexus for in-lieu fees, and the high costs needed to meaningfully expand parking resources, staff do not recommend expanding the in-lieu parking program to residential development at this time.
It may be possible in the future to create a voluntary off-site parking program, especially if subsidized by the City through funds or leveraging existing underutilized parking. Such arrangements may work for smaller projects or projects intended for workforce housing.
The following approaches could be considered as part of future efforts and conversations, including efforts currently planned by the OOT, to engage with residents and the City Council on potential changes to the City’s parking policies, including:
Consider a parking impact fee, or other fees or regulations to support alternative modes of transportation, such as walking, biking, and transit, instead of parking in-lieu fees in areas within ½ mile of the transit stations.
Consider a lower parking fee for residential developments if underutilized space in City lots and garages can be identified for such a purpose. Once completed, staff could monitor the City’s California Avenue and Downtown Automated Parking Guidance Systems (APGS) to identify if there are excess parking spaces which could be set aside for permit parking.
Consider in which instances off-site parking may be in the interest of both the developers and residents (existing and future) in targeted locations. Off-site parking may be viable for some developers and some projects (e.g., smaller projects, missing middle projects), but would need to be provided within a block or two of a project site. Off-site parking facilities would need to be available at occupancy to address tenants’ needs and community concerns about spillover.
Consider when on-site parking may not be desirable for the community on smaller or mid-block projects in pedestrian oriented commercial areas; due to the addition of more curb cuts and traffic crossing pedestrian sidewalks and bike lanes. Consider funding of bicycle and pedestrian improvements (as identified in the City’s Comprehensive Plan and Bicycle Pedestrian Transportation Plan) and transportation demand management measures by either the City or private developers to encourage households to shift away from reliance on personal vehicles, reducing the long-term need for parking.
While some relatively minor changes could be made at this time to City policies or ordinances to further reduce parking requirements for residential development, the most appropriate locations to consider initially are transit rich areas where State Law already supersedes local zoning requirements. The downtown area would be appropriate to consider broader, holistic parking demand management solutions as part of a future policy review. OOT staff expects to begin discussions in 2026 concerning potential parking policy changes that may address current challenges. This work is expected to consider parking issues for businesses and visitors, and future resident parking options might also be included. These discussions will incorporate a more contemporary understanding of how parking demand works, including how excessive parking resources induce vehicle miles traveled (VMT), traffic congestion, and car dependency.
Potential topics include opening up City parking resources to wider paid use cases, including long-term residential tenant leases of public parking, which could support housing affordability, how parking cash out programs could fund transportation demand management (TDM) and active transportation priorities, and how trip generation fees could be assessed to support mobility programs rather than parking capital projects. Additionally, Planning and Development Services staff will monitor applications from developers who are either exempt from or request a waiver from PAMC parking minimums to determine if there are market trends where future code amendments may be warranted.
FISCAL/RESOURCE IMPACT
This report has no fiscal or resource impacts. However, State laws which eliminate or reduce required parking largely eliminates the need for private property owners and developers from participating in the City’s in-lieu parking program, thus limiting future contributions.
STAKEHOLDER ENGAGEMENT
The City conducted stakeholder interviews with residents, housing advocates, developers, property managers, and property owner’s representatives. This information is summarized in Attachment A.
ENVIRONMENTAL REVIEW
This informational report does not constitute a project under the California Environmental Quality Act (CEQA) Section 15378 and therefore is exempt.
ATTACHMENTS
Attachment A: Housing Element Program 3.9B Parking Research and Analysis Memorandum APPROVED BY:
Jonathan Lait, Planning and Development Services Director